The first trading month of the year ended on Friday, a month that was defined by volatility. At the end of the January stocks are flat, as are bonds, and commodities are down. In common with the rest of the month, last week had much in the way of highs and lows with earnings reports, Europe and the Federal Reserve all playing their part. By the end of the week developed equities finished on the lows, and equity markets finished down on the week.
Looking back at the events of the past week the earnings season, as we pointed out on Friday, is definitely not offering much in the way of encouragement for investors. On the flip side expectations for the year ahead have been lowered, making it easier for companies to meet those expectations in the coming months.
The Federal Reserve on Wednesday seemed to leave investors generally with the view that US interest rates will remain at least where they are for the first half of the year. Last week’s election result in Greece seems to be bringing matters in the region to a head as both sides seemed to be digging in their heels. On Saturday the newly elected President put out a statement tryimg to calm nerves by saying he feels confident of reaching an agreement with its creditors.
The Vix closed the week once again above 20, a level that has seen enough fear enter for equities to find a base over the past year. European equity funds continue to see inflows, according to Merrill Lynch, one assumes on the back of the ECB announcing more aggressive monetary measures. Other sentiment indicators, aside from the vix, for example the put/call ratio and the AAII investor survey index still show investor sentiment remaining resilient.
Bonds remain well bid, yields on the 10-year US treasuries fell to 1.64% last week as investment grade bonds saw the 58th straight week of inflows. Yields on the 10-year gilt now stand at 1.33%; the FTSE 100 now offers a real return over gilts above 2%. Oil had a bounce as Brent closed above $50 a barrel; gold continues to hold recent gains trading at $1284 an ounce.
Earnings will once again dominate the week ahead as Microsoft, Caterpillar and Apple did this week. After Royal Dutch last week oil companies will once again be in focus, as BP and Exxon report along will General Electric. After lasts weeks better than anticipated numbers from Facebook, expectations may be raised for Twitter as they tweet earnings on Friday.
Aside from the usual selection of macro data, the week ahead is likely to see some focus on the comings and goings with Greece. On Monday we get the latest manufacturing data for the two largest economies in the world, China and the US. Thursday in the UK we the latest decision on UK interest rates, after last weeks minutes one can be fairly confident of no change to current rates.